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Government Mechanics

Cost-Plus Contract

A federal contract that reimburses a contractor's costs plus a fee, shifting overrun risk to the government.

Also known as: Cost-Reimbursement Contract

What it is
A cost-plus contract reimburses a contractor for allowable costs and adds a fee, used when scope or cost is uncertain, as in R&D and complex development. It contrasts with fixed-price contracts that put overrun risk on the contractor. Fee structures vary.
What it does
Cost-plus work lowers a contractor's financial risk on hard programs but caps margin upside and draws oversight. The mix of cost-plus versus fixed-price in a backlog shapes margin and risk. Investors read contract type to gauge earnings quality.
The evidence
Fixed-price development programs have produced large charges at defense primes, making the cost-plus versus fixed-price mix a watched metric.
Best for
Defense and development primes: LMT, NOC, RTX, BA.
Pairs well with
sole-source-contract, idiq-contract, ndaa
Use cautiously with
Cost-plus is lower-margin; assuming a big cost-plus win boosts profitability like a fixed-price deal misreads the economics.
Cautions
Program cost growth and disallowed costs can still pressure fees and reputation.
General information, not medical advice. Ingredient effects vary by formulation, concentration, and skin. Patch-test new actives and consult a qualified provider before starting prescription ingredients.

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